ITO 16(3)(1), MUMBAI vs. GHAVERCHAND B JAIN, MUMBAI

We have heard the ld DR for the revenue and the learned AR for assessee and perused the material available on record. The ld DR for the revenue argued that assessee could not prove the genuineness of purchases before the lower authorities. The assessee was asked to produce the persons from whom the assessee made the purchases during the relevant assessment year. The assessee was given sufficient opportunity to prove the genuineness of purchases. The assessee availed accommodation entries from the persons who were involved only on supply of bogus bills and never supplied the goods. It was prayed that the order of ld CIT(A) may be set aside and the entire addition made by assessing officer in the assessment may be upheld. On the other hand the ld AR of the assessee argued that the assessee produce sufficient evidence before the assessing officer consisting of purchase invoices, delivery challan, bank statement showing payments made in the name of parties, chart of corresponding sales and the sale invoices to prove the genuineness of purchase. Being Trader sales was not possible without corresponding purchases. The parties could not be produced before the assessing officer due to lapse of time as and no direct contact with them. All the parties are in existence and doing their business activities in the name of their firm. The assessee was not provided the copy of the investigation conducted by the Sales Tax Department and the copy of affidavits filed before the authorities concerned. It was further argued that the theory of peak credit should not be applied as there was no evidence to show that the purchases from the alleged parties were not genuine. It was argued by Ld AR of the assessee that the entire addition may be deleted.

We have considered the rival contention of the parties and gone through the order of authorities below. We have also gone through the paper book filed by ld AR of the assessee on record. We have seen that in the assessment order AO has not recorded that the sales recorded by assessee was wrong or that assessee has not made sales of the item so purchased from the alleged Hawala/ bogus traders. The AO based his entire addition on the basis of the record and the name of the dealers appeared in the website of sale struck Department of State of Maharashtra. The AO has not made any independent equerry nor the statement or affidavit of such Hawala dealer was supplied to the assessee. The learned CIT(A) while considering the case of the assessee and after discussing the factual metrix including the decision of Hon’ble Jurisdictional High Court in Nikunj Enterprises Private Limited Vs CIT 216 taxman 171(Bom) held as under: “2.4.32 as narrated earlier, the ld AO in this case has himself held that the purchases themselves were not bogus though the parties from whom the purchases were made by the appellant were found to be bogus and that is the reason for which these parties were not produced during the assessment proceedings. The motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. I also find that the appellant had himself admitted before the ld AO vide his letter dated15.02.2013 that it had made a GP of 5.92% on the sale of goods allegedly procured from these bogus entities as against overall GP ratio for the year at the rate 8.55%. Thus, the appellant has himself admitted a lower percentage of profit in such bogus transactions. Considering the facts of the case as well as the various case laws cited (supra) especially in case of CIT Versus Smith P Sheth (supra). I sustained an addition to the extent of 12.5% of the purchases made as the profit element embedded in such purchases. Accordingly Ground No.1&2 are partly allowed.”